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After a continuation pattern, the price continues the previous trend. Continuation patterns are a very good indication for entering a trade after a trend reaction.
Triangle formations appear as symmetrical triangles, ascending triangles, and descending triangles. The triangle is a correction pattern for the previous price move. A triangle formation takes a minimum of 30 bars. Shorter-period triangle formations are classified as pennants.
Figure 4.51: Symmetrical triangle pattern.
In the weekly price chart in figure 4.51, you can see higher bottoms and lower tops; this creates a symmetrical triangle. A breakout in the direction of the previous trend confirms the continuation pattern.
Figure 4.52: Descending triangle pattern.
In the daily chart in figure 4.52, lower tops are made in an uptrend. Next, the price drops back to horizontal support levels, and a descending triangle is created. A breakout in the direction of the previous trend confirms the continuation pattern.
The rectangle is a relatively rare pattern, appearing almost always as a continuation pattern, although it can exist as a reversal pattern. The price moves between two horizontal trendlines and touches a minimum of two times each line.
Figure 4.54 shows a rectangle continuation pattern in an uptrend.
Figure 4.54: Rectangle continuation pattern in an uptrend.
Figure 4.55 shows a rectangle continuation pattern in a downtrend.
Figure 4.55: Rectangle continuation pattern in a downtrend.
With a continuation of the previous trend 90% of the time, flags and pennants are reliable short term continuation patterns. They create a pause from 5 up to 25 bars in the current trend and then continue the previous trend. Most of the flags and pennants take up from 10 to 15 bars. Generally, the volume goes down during this phase.
Figure 4.56 shows flags in an uptrend.
Figure 4.56: Flags in an uptrend.
Figure 4.59: Pennants in a downtrend.
Look at pennants in a downtrend in figure 4.59.